On May 1, 2012, lawyers for KindHearts for Charitable Humanitarian Development, the Ohio-based charity shut down “pending investigation” by the Treasury Department in February 2006, announced a settlement agreement with Treasury ending the litigation on terms favorable to the charity. In 2009 the federal district court for the Northern District of Ohio ruled that the process Treasury used to shut the charity down while investigating alleged ties to terrorism violated the constitution, and ordered further proceedings on what remedy Treasury should provide. The settlement ends the litigation by allowing KindHearts to pay its debts and distribute the remaining funds among a list of approved charities before it dissolves. At that point Treasury will remove KindHearts from its terrorist list and pay its attorneys fees. Neither side admitted to any wrongdoing.

KindHearts, formed in 2002, was shut down in February 2006 under a provision of the PATRIOT Act that allows Treasury to seize and freeze assets “pending investigation” into whether or not the group is a supporter of terrorism. After a long series of attempts to contest the charges against it (see KindHearts Timeline) KindHearts filed suit in 2008, challenging the constitutionality of Treasury’s process. In 2009 Judge James Carr ruled that Treasury failed to provide KindHearts with sufficient notice of the reasons for its action or an adequate opportunity to contest the charges against it. He also ruled that Treasury’s seizure of assets and freezing of funds without a court order violated KindHearts’ Fourth Amendment protection against unreasonable search and seizure. In his opinion Carr remarked that “KindHearts is not only blindfolded, but also has its hands tied behind its back.” (See a summary of the Court’s ruling here)
The three page settlement agreement spells out a step-by-step process for resolving the case:

  • KindHearts has 90 days to provide Treasury with a list of its valid debts, and within 30 days of that time Treasury will issue a license authorizing payment of the debts and “apportionment of all remaining funds between the entities listed in Appendix A.” These are the UN World Food Programme, the UN Children’s Fund, the UN Relief and Works Agency for Palestinian Refugees and Mercy Corps. Masjid Saad, an Islamic school in Toledo, will receive KindHearts’ physical assets.

  • KindHearts will dissolve and cease operations once the assets are disposed of.

  • After KindHearts has dissolved Treasury will have 60 days to remove KindHearts from the terrorist list and lift orders blocking its property. As long as KindHearts complies with the agreement, Treasury will not put it on the terrorist list.

  • Treasury will pay KindHearts’ attorneys $330,000 within 180 days of the agreement, something that generally would not be required unless the government’s position is not substantially justified.

  • Once all the steps described above have been taken the parties will ask the court to lift the injunction against Treasury and dismiss the case with prejudice, ending the litigation.

The press release from the ACLU, which was co-counsel for KindHearts, noted that “This is the first time the government has agreed to de-list a frozen organization as a result of a lawsuit, and then allow it to distribute its assets.” ACLU attorney Alex Abdo went on to say “No American charity should have to endure the unconstitutional treatment that KindHearts was subjected to.” KindHearts attorney and law professor David Cole said “The Treasury Department settled only after a federal court ruled that the designation process denied KindHearts notice and a fair opportunity to defend itself, the bedrock requirements of fair process.
The Toledo Blade said Treasury issued a statement saying the settlement “ensures that KindHearts will not be able to resume the activities that resulted in its property being blocked, and that its property will not be used for illicit purposes.”
Going forward, Cole noted that “If the Treasury Department wants to use this process in the future, it will need to amend its procedures to bring them into conformity with the Constitution.” Treasury will also need to consider the Ninth Circuit Court of Appeals ruling against it on the same issues in the case of Al-Haramain Foundation v. Oregon.